What You need to know before you trade after hours

Apr 24, 2019 23:36

After hours trading differs from normal trading. The normal trading hours are usually accepted to be the hours of the day between 9am and 4pm. The after hours trading hours are those which do not lie within this time period. Trading can still take place outwith the hours of those between 9am and 4pm, but the market and its investors differ from those within the regular trading hours.

After hours trading uses an electronic communication network to connect buyers and sellers of stocks, they also allow for larger investors to connect with each other anonymously that invest on the behalf of their customers/members. This anonymity is well used by these larger investors as they may want to hide their actions so that others are not aware of what stocks they think are the best to purchase. Up until the latter part of the 20th Century, these larger institutions were the main users of electronic communication network enabled after trading sessions. Now, with the availability of electronic communication networks (ECNs), after hours trading is accessible to anyone that wold like to try it out, via accounts that they have with stock brokers. After hours trading is also commonly referred to as extended hours trading. These after hours (or extended hours) trading times do not take place at simply any time outwith the normal hours, they take place in allocated sessions. These allocated sessions typically run between 0800 and 0915 (EST), as well as 1600 and 2000. These are the only two after hours trading sessions that take place.

Throughout the remainder of this article, we’ll take a look at what you should know about the stock market, and after hours trading before you decide to do so! It is important to be informed thoroughly of the market, stocks, and the practices of after hours trading as a whole before venturing into these sessions.

How exactly does after hours trading work to start with?

After hours trading works via means of an electronic market. An electronic market is a platform that is created in order to match orders from different traders with one another. What this means, is that should there be no traders ordering one stock in particular, anyone that wishes to purchase the stock in question has to wait until someone sells it, so they can purchase it. A sale and a buy must be matched together for an order to be successfully processed.

Whilst after hours trading is not a recent development in the world of stocks and shares, it has not always been open to just anyone. It used to be the case that only those investors with an extremely large amount of capital to spend alongside large institutions such as banks and stockbrokers were those that were allowed to partake in trading within the after hours sessions.

If you are at the point in your trading career that you are considering venturing forth into the after hours trading sessions, you have most likely traded securities on the normal stock exchange before, and will have a good idea of how it works. That being said, even if you are not an experienced trader, you should still be aware that there are a number of differences between after hours trading sessions and normal trading sessions that will affect both what stocks you can buy and how you go about purchasing these stocks.

What are the differences between normal and after hours trading times?

The first main difference as you will most likely have guessed is to do with the times at which you can place orders for stocks that you would like to purchase. Normal trading hours occur, as aforementioned, between the hours of half past 9 in the morning and 4 o’clock at night. However, after hours trading takes place between the hours of 0800 and 0915, with orders being able to be placed between 0805 the night before and 0925 the following morning. These orders will be executed within the designated after hours trading times.

The next major difference between normal trading hours and after hours trading hours are the locations on which you can trade. For normal trading, it tends to take place on standard stock exchanges as well as nasdaq. After hours trading however does not, it is done via an electronic trading market.

In the normal trading market, traders can place orders for stock in a number of different configurations, such as limit and stop limit orders. The after hours trading market allows for only limit orders to be placed. The order size allowances also vary considerably between the two markets. In the standard stock market, one can place an order size of however large they would like. When trading in an after hours time however, one cannot purchase more than 25k shares in one order. Order times are different between the two markets as well. The standard market operates differently in accordance with whatever time limit the trader that is attempting to make trades is in. The after hours market however only allow orders to remain valid for the sessions that they are placed in.

A main and important difference between the two markets exist that, if you are trying after hours trading for your first time and are an experienced normal trader you will absolutely notice – they are much quitter. The fact that the after hours markets are considerably more quiet than the normal ones can influence a number of factors. The main advantage of higher traffic on the stock market is that it generates a much higher level of liquidity which allows for the speedier buying and selling of stocks, and more stable prices. After hours trading sessions though are much quieter, meaning that the is massively reduced liquidity and therefore more price changes, since a less amount of traders is required to have an affect on the price of one stock.

A number of key differences exist between normal and after hours trading that, if you wish to enter after hours trading successfully, you should most certainly make yourself aware of!

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